Then a huge error occurred. An employee of Bithumb, the second-largest cryptocurrency exchange in South Korea, failed to disburse 620,000 Korean won.
Instead, the prizes appeared in a different currency—620,000 bitcoins, worth over $40 billion—because of an input error.
This meant that a winner who ought to have received 2,000 won, which would have been sufficient to purchase a modest cup of coffee, instead received more than $120 million in bitcoins, at least temporarily.
After around 30 minutes, Bithumb stopped transactions because enough recipients wanted to sell or withdraw bitcoin, causing the market to drop 17%. Affected were investors who owned bitcoin prior to the disastrous giveaway. Bithumb said the damages came to roughly $685,000 in total.
Since then, the company claims to have either reversed the transactions or had recipients willingly return over 99% of the bitcoins that were distributed incorrectly. However, Bithumb is still attempting to persuade consumers who were able to sell over 100 bitcoins during the short trading window—worth over $9 million—to return the equal amount of money.
As a result of the scandal, Bithumb, a reputable brand in one of the busiest retail cryptocurrency exchanges globally, is currently experiencing a self-destructive crisis. Lawmakers are demanding stricter regulations. Regulators of the local financial markets claim that the blunder has revealed serious flaws in the nation’s digital asset market.
In an attempt to limit losses, the corporation has offered to reimburse those who sold their bitcoin in addition to additional payments. This week, it reduced trading fees for every asset. In order to safeguard users in the case of another mishap, Bithumb has promised to set up a permanent “Customer Protection Fund” of about $70 million.
Crypto experts in the area said that Bitcoin’s fraud-detection system did not seem to have been activated. Lawmakers in South Korea are concerned about the so-called “phantom currency” problem: How Bithumb distributed 620,000 bitcoins when its own inventory seemed to have been closer to 50,000.
Financial authorities in South Korea said on Tuesday that they have launched a formal probe against Bithumb. That might result in possible fines or other sanctions.
According to a corporate spokesperson, Bithumb is actively participating in the investigation and maintains 24-hour surveillance to stop such occurrences.
Local laws restrict cryptocurrency exchanges from allowing trades that exceed the total amount of coins stored in their digital vault. However, such does not seem to be the case with the latest Bithumb action, which Lee Jung-soo, who advises the South Korean government on digital-asset legislation, described as a “catastrophic collapse of internal controls.”
Regarding the absence of a strong monitoring mechanism, Lee, a law professor at Seoul National University, stated, “It is almost amazing that Korea’s second-largest exchange has such porous IT infrastructure.”
Unintentional bitcoin losses and giveaways are uncommon, particularly at this size. When an IT worker from Wales misplaced a hard disk during an office cleanup in 2009, he lost over 7,500 bitcoin that he had mined. Although it eventually recovered most of the money, the now-defunct cryptocurrency lender BlockFi mistakenly issued hundreds of bitcoins to certain consumers in 2021.
